Carrot or stick? An empirical analysis of the different implementation strategies of the EU directive on nonfinancial information across Europe

The recent EU Directive on nonfinancial information (NFI) disclosure allows Member States some discretion regarding its implementation. More specifically, it allows countries to decide whether: (a) information assurance is compulsory; (b) companies can waive NFI disclosure because of possible competitive harms (safe harbor); and (c) fines can be imposed on companies not disclosing NFI. We empirically test the impact of different implementation strategies on NFI quantity and quality, and we find that regulations providing incentives ('carrots') are more effective than regulations imposing costs ('sticks'). More specifically, while mandatory assurance and safe harbor have a positive impact on NFI quantity, fines do not. Our results contribute to the literature on NFI disclosure and inform regulators on the effectiveness of different implementation strategies.